Tuesday afternoon, the Department of Justice announced a final $13 billion agreement with JPMorgan Chase over the risky mortgage practices and financial securitization practices that lead up to the 2008 financial collapse.
So what’s in the settlement, and how far does it go in truly making the financial sector accountable for the widespread economic misery it caused five years ago?
What wrongdoing is JPMorgan paying for?
This goes to the heart of what caused the financial crisis. The settlement is resolving claims that JPMorgan Chase (and two firms it later purchased, Washington Mutual and Bear Stearns) sold Residential Mortgage-Backed Securities when it knew the underlying mortgages were troubled.
It was these toxic securities that infiltrated the global economy and then turned sour, taking the financial system with them. JPMorgan Chase did not formally admit to guilt (which would have placed the bank in even more serious regulatory and legal jeopardy) but did agree to a statement of facts outlining severe malfeasance in the run-up to the crisis. Specifically, the statement of facts outlines how, on multiple occasions, bank employees knew that the underlying mortgages were not appropriate for securitization but allowed it anyway and never told the investors who were making the purchase.
Getting at this misconduct was the reason the Residential Mortgage-Backed Securities task force was formed. “Since my first day in office, I have insisted that there must be accountability for the misconduct that led to the crash of the housing market and the collapse of the American economy,” said Attorney General Schneiderman, co-chair of the RMBS group. “We won a major victory today in the fight to hold those who caused the financial crisis accountable.”
How much is JPMorgan Chase paying, and where does the money go?
The settlement is for $13 billion—the largest sum a single company has ever paid the US government, more than tripling the previous mark, which was the $4 billion BP paid the government for the Deepwater Horizon spill. Thirteen billion dollars also represents half of JPMorgan Chase’s annual profits.
Nine billion of that goes to settle claims brought by various regulatory agencies and states over claims related to RMBS. Specifically, JPMorgan will pay $2 billion as a civil penalty to settle the Justice Department claims under the Financial Institutions Reform, Recovery, and Enforcement Act; $1.4 billion to settle federal and state securities claims by the National Credit Union Administration; $515.4 million to settle federal and state securities claims by the Federal Deposit Insurance Corporation; $4 billion to settle federal and state claims by the Federal Housing Finance Agency; $298.9 million to settle claims by the State of California; $19.7 million to settle claims by the State of Delaware; $100 million to settle claims by the State of Illinois; $34.4 million to settle claims by the Commonwealth of Massachusetts; and $613.8 million to settle claims by the State of New York.